Things to keep in mind while investing in mutual funds

If fixed term deposits (FD) have yielded returns, it is because an individual has chosen to be consistent with funds. The same case should ideally apply to mutual funds which are not considered at par with such long-term and consistent funds.

There are so many incorrect ideas floating around mutual funds that it is making life difficult for genuine investors. What are mutual funds and why they need to be dealt with cautiously are some of the questions that need in-depth answers.

One forgets the objective of the investment that was initially agreed upon on which the risk factors and other portfolio was prepared according to the advisor’s suggestions. Just like fixed deposits and Public Provident Funds (PPF) which require regular investing, mutual funds can also yield returns if one keeps investing in them as regularly as PPF or FD. Corpuses can be created with huge funds if the simple rule of regular investment is followed.

Consider this example, once, an investor invested in a Systematic Investment Plan (SIP) for his children. The plan amounted to Rs 20,000. He had no memory of it after a while. He saw good returns in his portfolio in 2007 and saw bad days in 2008-09. Yet, he continued to invest. In 2010, one of his SIP of Rs 10,000 stopped but the other SIP continued. With an investment of Rs 19 lakh till now, he has Rs 53 lakh of savings. At a compounded interest of 14.5 percent, he managed to turn the tables in his favour.

Therefore, instead of trying to maximise the gain by switching from one fund to another and exposing your capital to the highly volatile stock market, one can try to make 12-14 percent returns without unnecessary troubles. As an investor, one should ask oneself if they are chasing returns or trying to make money. If you as an investor chase the bullish market and invest, then the point of the investment is hardly met as the gains will hardly be profitable or in fact, there may be unceremonious losses.

For instance, a midcap scheme is different from a balanced scheme and therefore needs to be compared on different scales. These kinds of behaviours from investors will not do justice to their savings, feel experts. They recommend investors to study the different examples who have made a name in the stock market by just being consistent with their savings. They even recommend going back to their original idea of investments, studying the scope of their investment, sitting with the advisor to learn more about the plan and the scheme chosen as well as understand that the stock market is subject to short-term changes that might impact their savings in the short-term. But in the long-term, with continued flow of investments, the mutual funds will accrue gains.

If a fund outperforms in bull markets and underperforms in bear markets, then one should not go for the fund in the investment portfolio. The fund management team and strategy employed on the fund should also be paid attention to by the investor while deciding on the fund to opt for.

Vikram has been covering real estate, infrastructure and urban management sectors for the past 12 years. He has been writing for publications such as The Times of India, The Economic Times, The Financial Express and several other newspapers, magazines and portals. He has also worked with online real estate company Magic Bricks and global management consulting companies Grant Thornton and Feedback Infra.